Card Suit Zeros In on Collections

National regulatory scrutiny may turn to how card issuers collect on delinquent and charged-off credit card debt thanks in part to a new California lawsuit against JP Morgan Chase alleging illegal collection activity.

In the May 9 suit, California Attorney General Kamela Harris alleged that the bank had been using shoddy and even fraudulent legal practices in widespread attempts to collect on credit card debt for which the bank actually had insufficient records or lacked records entirely.

“For years, defendants have flooded California’s courts with collection lawsuits against defaulted credit card borrowers based on patently insufficient evidence–betting that

borrowers would lack the resources or legal sophistication to call defendants’ bluff,” Harris alleged in the complaint. “Rather than follow basic procedures to ensure fundamental fairness to California consumers, defendants have run a massive debt collection mill that abuses the California judicial process to obtain default judgments, writs of execution and wage garnishment orders on the backs of lawsuits that cannot

withstand scrutiny. At nearly every stage of the collection process, defendants have cut corners in the name of speed, cost savings, and their own convenience, providing only the thinnest veneer of legitimacy to their lawsuits.”

Abuses detailed in the complaint included telling consumers that their files had been reviewed by attorneys when, in fact, they had not been; claiming inaccurate amounts of debt; and threatening to collect attorney's fees and file liens on real property.

Other allegations hearken back to the robo-signing scandal in mortgage lending and foreclosures. “Defendants file a verification of the complaint in which the declarant states, under penalty of perjury, that the declarant is an assistant treasurer and officer of Chase USA, and that the matters alleged in the complaint are true. These statements are false. The declarant is neither an 'assistant treasurer' nor an 'officer' of Chase USA, but rather a low-level employee of BankCard Services who has never even seen the complaint,” the attorney general wrote.

The complaint charges that the bank has filed more than 100,000 such debt collection lawsuits against cardholders between January 2008 and April 2011, including over 460 on one day alone, followed by another with 226 filed.

JP Morgan has not commented on the suit, other than to say it is cooperating with California.